As the mobile, fast-paced world of the emerging “internet of things” technologies transform how retailers do business, Realtors® must keep up with the massive changes affecting commercial real estate.
       
“Far from being immune to the rapid acceleration of technological change, the real estate industry…which is profoundly ‘old school’…will be deeply affected by innovation as adoption accelerates and disruption unfolds,” predicts Amy Erixon of commercial real estate firm Avison Young in a May 2016 research report.
       
Facing the greatest challenges are the existing “bricks and sticks” retailers ranging from local “mom and pop” stores to major international brands. With in-store visits dropping at an alarming rate for the past several years, retailers are replacing some goods on the shelves with quality experiences to lure shoppers to their stores. 
       
Customers and retailers are rapidly changing the concept of what a store provides, as retailers downsize and shutter existing establishments, reduce inventories and move more of their inventory online.
   
The transforming nature of retailing has left commercial real estate agents facing at least four significant issues:
1. Helping clients downsize or terminate existing property arrangements while minimizing the adverse impact on property values;
2. Finding alternative uses for existing retail properties; 
3. Relocating existing retailers into more attractive mixed-use locations combining retail, office and residential users; and
4. Helping landlords and tenants determine what mix of retailers, store sizes, formats and experiences will attract shoppers and enhance the business value of retail locations.
   
As declining sales and stagnant growth pinch profits, survival will depend on creating a community where shoppers will spend the day, and their money, along with family and friends shopping, dining and enjoying entertainment. 
“Customers want a shopping experience that is exciting and compelling,” noted Tina Leone, CEO of the Ballston Business Improvement District.   
       
Helping to create a new identity beyond traditional product offerings, retailers have added events from Christmas tree lighting ceremonies to ice skating, musical events and food celebrations. At Tysons, developers have created the Lerner Town Square near the original shopping center, where the world-famous Cirque du Soleil performs through September 18. “Events like these put Tysons among the great cities anywhere,” Michal Caplan, CEO of Tysons Partnership enthused. “We want people to come and say…I had no idea what was going on at Tysons.”

“Far from being immune to the rapid acceleration of technological change, the real estate industry…which is profoundly ‘old school’…will be deeply affected by innovation as adoption accelerates and disruption unfolds.” - Amy Erixon

On a smaller scale this approach is also being extended to grocery stores with eat-in food service and cooking classes, or department stores with in-house restaurants and fashion shows. Even Barnes and Noble, which already sells DVDs, CDs, toys and magazines at its bookstores, recently announced that it would be adding booze to books by including wine and beer sales at its in-house cafes.
Traditional retailers are also adopting “click and collect” services integrating online and in-store strategies. This strategy transforms their stores into showrooms where customers can select merchandise to be delivered to their homes from centralized warehouses, often with same-day service.
           
Abandoning an existing location may be extremely expensive for retail tenants, especially if there are years remaining on their lease, but landlords are also facing challenges in the new environment.
       
Successful landlords are increasingly looking to fill their spaces with tenants featuring a mix of product and experience providers. Grocery and department stores are locating side by side with restaurants, yoga studios, specialty shops, hair dressers, movie theaters and nail salons to mimic a walkable, urban shopping experience providing connections between living, working, playing and sleeping for nearby residential and office tenants. 
           
In its new Commonwealth Center off Route 7 in Loudoun County, the Peterson Companies have jettisoned standard retail development by starting with a Top Golf location alongside an indoor sky diving facility called iFLY. 
       
The two businesses are doing “phenomenally well” according to Paul Weinschenk, president of retail for the Peterson Cos, and have been positive for the community. His next challenge is adding to the development. A concern for the developer: “How do you fit in more traditional retailers?”
           
For traditional retailers the next question may be….”what next?” What are the technologies coming over the horizon that will affect retailing and the way consumers live and shop….driverless cars? drones? virtual reality? artificial intelligence? Whatever it is, as Erixon predicts, commercial real estate agents will be among the first to deal with the disruption.

Frank Dillow is a past chair of NVAR’s Realtor® Commercial Council and is a vice president in Long & Foster’s Commercial Division. He can be reached at francis.dillow@longandfoster.com